TARP: And Then There Were None

For months,
Wells Fargo
insisted it would repay its $25 billion worth of federal bailout funding in a way that wouldn't dent existing shareholders. Its priorities seem to have changed.

The San Francisco based-bank said late Monday it would sell $10.4 billion in common shares to refund the money given it under the Troubled Asset Relief Program. The dilution to existing shareholders, the largest of which is Warren Buffett's
Berkshire Hathaway
, seems to be less troublesome than being the only major bank left under the government's thumb.

Monday morning,
Citigroup
announced plans to sell $20 billion of stock and debt to repay some of the $45 billion it took under TARP, enough to get it out from under the strictest of government controls. (See "Citi: It's Payback Time") Earlier this month,
Bank of America
started the process of repaying its $45 billion in TARP funds.

The exit of
Wells Fargo
would reduce the roster of TARP wards mostly to large regional banks, including Pittsburgh-based
PNC Financial Services Group
and Atlanta-based
SunTrust Banks
.

For the big Wall Street banks, the urgency to get out of TARP was palpable. Regulators have clamped down on executive compensation at companies taking government assistance, a threat to the traditionally huge bonus payments that go to star traders and bankers.
Goldman Sachs
,
Morgan Stanley
and
JPMorgan Chase
exited the TARP much earlier this year.

For regional banks without a meaningful trading or investment banking business, paying back TARP to get out of pay restrictions is less urgent. Wells Fargo, which is known mostly as a retail banking giant, last year acquired a sizable capital markets business when it bought Wachovia. Last fall when the TARP was doled out, Wells executives protested that they neither needed nor wanted the money.

Since then, Wells has resisted the idea of selling new shares. Analysts have pointed out that it is the least well capitalized of the biggest banks according to one measure emphasized by the Treasury in its capital stress tests earlier this year. Wells' tier one common ratio, which measures common equity against risk based assets, was 5.2% at the end of the third quarter, compared with 9% or more at rival banks.

In recent weeks, analysts have said it was likely the government would want it to raise more capital in the private markets to bolster that ratio. Rochdale Securities analyst Richard Bove put a "sell" rating on Wells Fargo stock in late October, anticipating this dilutive effect.

Wells said its tier one common ratio would rise to 6.2% after the repayment and it would eliminate the need to pay $1.25 billion in annual dividends on the government's investment.

In addition to raising $10.4 billion through an issuance of common stock, the bank will raise another $1.35 billion by issuing shares that will go to benefit plans and to employees in lieu of a portion of their year-end bonuses. It also agreed to sell $1.5 billion worth of assets by the end of 2010 to further boost its capital.